subject- Investment..

chapter name- optimal risky portfolio.expecting answer from finance expert....

Please show all your calculations. Problem 1 ( 33 pts) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 3.5%. The expected return of stock fund and bond fund are 32% and 12%, respectively. The standard deviations of stock fund and bond fund are 35% and 20% respectively. The correlation between the fund returns is 0.42. Assume you have a quadratic utility in the form of [U=E(rP)21AP2] and a risk aversion coefficient equal to 3 . f) You want to invest $10,000 in a portfolio C that is formed from the T-Bill money market fund, the bond fund and the stock fund. If you require that your portfolio maximizes your utility and that it be efficient, on the best feasible CAL. What is the rate of return of your portfolio? What is the standard deviation of your portfolio? How much money will you invest in the T-bill fund and each of the two risky funds? What will be your utility? (8pts) Please show all your calculations. Problem 1 ( 33 pts) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 3.5%. The expected return of stock fund and bond fund are 32% and 12%, respectively. The standard deviations of stock fund and bond fund are 35% and 20% respectively. The correlation between the fund returns is 0.42. Assume you have a quadratic utility in the form of [U=E(rP)21AP2] and a risk aversion coefficient equal to 3 . f) You want to invest $10,000 in a portfolio C that is formed from the T-Bill money market fund, the bond fund and the stock fund. If you require that your portfolio maximizes your utility and that it be efficient, on the best feasible CAL. What is the rate of return of your portfolio? What is the standard deviation of your portfolio? How much money will you invest in the T-bill fund and each of the two risky funds? What will be your utility? (8pts)